How young is too young to buy a home? Millennials are taking over as the largest group of home buyers in the United States, but some wonder whether they are able to qualify. What does it take to qualify for an FHA mortgage?
Are There Age Restrictions On FHA Home Loans?
FHA loans do require all borrowers to be of sufficient legal age to sign legally binding contracts. But aside from that, there are no real age limits for FHA mortgages with one exception.
The FHA Reverse Mortgage, which lets qualified borrowers convert the equity in a home they own outright into cash, is limited to borrowers aged 62 or older. But for forward FHA mortgages to purchase a home, as long as the borrower is otherwise qualified and of legal age to sign contracts, there are no age reqirements.
FHA Home Loan Employment Requirements
Millennials should know that FHA home loans in general require the lender to verify two years of employment. That does not mean verifying two years with the same employer necessarily, but for best results millennials should come to the FHA loan process with 24 months of work history.
FHA Loan Credit Requirements
Some housing finance blogs make a point to discuss the advantages of borrowers in their 20s applying for home loans. One blogger writes, “Getting a mortgage loan at a young age can help you establish a solid credit history,…”. But you will need some type of credit history-even a non-traditional one-to qualify for an FHA mortgage loan.
What does the lender need to be able to approve a home loan for someone applying with little to no credit history? A look at the FHA home loan rulebook, HUD 4000.1, reveals the following, which says the lender must;
“…determine the Borrower’s creditworthiness, capacity to repay, and available capital to support the Mortgage. The Mortgagee must also examine the Property to ensure it provides sufficient collateral for the Mortgage. “
The lender is required to examine the following, according to HUD 4000.1;
- Borrower’s Credit Report
- Borrower’s Liabilities/Debt
- Borrower’s Effective Income
- Borrower’s Assets/Reserves
- Adjusted Value
- Borrower’s total Mortgage Payment including Principal, Interest, Taxes, and Insurance (PITI)
If you have thin credit or non-traditional credit, the lender may be able to work with you regardless, but you may be required to supply additional documentation for the lender to use. But one thing borrowers should not do is to consider a home loan as a way to begin establishing credit-the home loan is a major investment and is treated as such by your lender.
It’s best to begin establishing credit in smaller ways rather than hoping to get into a mortgage and start your credit history with a big loan. Borrowers should plan to save up funds for the down payment and work on establishing a full 12 months of on-time payments on all financial obligations before applying for a new home loan.